While every company will have to critically re-evaluate its 2020 technology spend, not every business is facing the same challenges. Global research company Forrester has released insight to help companies navigate the treacherous task of cutting tech costs in the short term without causing operational mayhem when the economy corrects.
“CIOs and their business partners will be expected to make bigger cuts to tech budgets than they have ever faced in the past. But not all firms face the same dire prospects. While some will struggle for survival, others will face the challenge of cutting in some areas but preserving or expanding in others. And some will have the financial resources and/or increased demand to expand tech budgets,” said Forrester vice presidents and principal analysts Andrew Bartels and Bobby Cameron in their report Where to Adjust Tech Budgets in the Pandemic Recession.
Breaking down the various responses to the Covid-19 economic realities, the authors have divided organisations into three main operational modes:
Survival mode: These organisations have generally already experienced significant revenue decline and find themselves struggling for survival. Sectors that are seeing some the worst damage due to lockdown and social distancing measures include travel, leisure and entertainment, restaurants, discretionary retail, and oil and gas, experiencing anything between 40% to 95% revenue decline. Companies in other sectors are just as likely to be hit, especially the less mature and those which have limited financial resources.
Adaptive mode: These are organisations that may have seen big revenue drops in part of their operations, while others remain less affected, or may even be growing. While these businesses may not be in imminent danger, CEOs and chief financial officers will be putting pressure on CIOs to reduce tech spend between 5% and 15% for the rest of the year.
Growth mode: Some companies are enjoying new opportunities as a result of the lockdown economy. The e-commerce and logistics firms that support them are good examples. Added to these, cloud infrastructure providers, collaboration platforms and virtual private network providers are capitalising on the boom from work-from-home requirements.
A new plan is required
The authors point out that with the increased dependence on technology to support business pandemic models, cutting too much (and in the wrong places) could cause real damage to future operations. A checklist that helps CIOs rationally trim their budgets for the rest of 2020 and into 2021 has been devised with the input of the Forrester analyst collective.
Computer and communications equipment
- Companies in survival mode will have little choice but to cut hardware by 80% or more. The exception will be equipment for employees working from home.
- Those in adaptive mode should cut 50% of their spend or try tap vendor financing.
- Companies in the growth phase should investigate vendor discounting but should remain cautious in their hardware plans.
New project spending in general
- Companies in survival mode will likely aggressively scale back on new projects, and push vendors for discounts on existing projects.
- Organisations in adaptive mode will likely cut back on new spending by 30% to 40% and should carefully prioritise projects.
- Those in growth mode can try to do more with less and even look to expand new projects, taking advantage of vendors who are prepared to offer discounts to those who are still spending.
New sales, marketing and commerce initiatives
- Those in survival mode will likely cut half or more of new projects but will have to ensure they are still able to support existing customers.
- Companies in adaptive mode should look to reduce spend by 10% to 20% but preserve new projects that will strengthen or expand e-commerce capabilities.
- Companies in growth mode should look to expand front-office initiatives – this is a chance to gain on competitors.
New spending for back-office projects
- Firms in survival mode will cut back spending on larger projects. However, smaller-scale projects to support employee productivity for home workers could likely still proceed.
- Companies in adaptive mode will cut back-office new projects by 10% to 20%. Existing projects will likely proceed, especially if they will result in costs savings later in the year and into 2021.
- Organisations in growth mode will look to expand initiatives; they should also look to use this time to accelerate digital transformation and pay down existing tech debt.
Software maintenance and subscription spending
- Companies in survival mode should be looking at 20% to 30% savings, or more if possible. Looking closely at contracts to see if there are potential cost cuts such as if software-as-a-service support is billed by employee is a good idea.
- Firms in adaptive mode should be rationalising contracts to save between 5% and 10%.
- Growth phase organisations should be looking for savings opportunities to fund expansions, but not at the expense of existing vendor relationships.
Outsourcing
- Companies in survival mode must remember vendors have a vested interest in your survival push for waivers, but at the least negotiate fee cuts in return for extended contracts.
- Companies in adaptive mode should be looking for fee savings of at least 10% to 20%.
- Those in growth mode can still benefit from vendor discounts or enhancements.
The report also looked closely at staffing and telecommunications costs, exploring how these could be reduced.
The authors wrapped up the 38-page report by warning companies that things may change quickly in an uncertain future. They advised CIOs to have solid contingency plans in place and to ensure they had accounted for the fact that their businesses may shift between survival, adaptive and growth modes in the coming months and they should have a good idea of how to deal with all eventualities.
“When the CEO and CFO tell the CIO that they need to cut the tech budget by 10%, or 20%, or even more, it can be hard to fight these demands. But recessions always come to an end and companies need to be prepared for the economic recovery that follows. Tech budgets almost never have so much excess that adjustments of this magnitude can be achieved without cutting into tech “muscle”. So, CIOs need to think hard about which deep cuts will still allow the firm to operate when growth resumes and which ones may have lasting impact,” the authors said.
South African CIOs can access a recent Forrester webinar with Forrester’s vice president and research director serving CIO professionals, Pascal Matzke, for more insight into how they can better manage their budget over the next few quarters. The company has also invited local IT leaders to share their experience in a Forrester survey which can be accessed here.
For the past decade, Forrester has been delivering deep insights into how people interact with technology, how their behaviours and expectations change, and how companies should respond. Our Technographics data, based on rolling, annual, global demand-side (not supplier-led) research surveys, provides a wealth of information on which business leaders can rely for dependable, forward-looking advice.
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